(Test Bank) Managerial Economics A Problem Solving Approach

Froeb,Mccann,Ward,Shor, 6

Business

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Test Bank for Managerial Economics A Problem Solving Approach, The downloadable file consists of 368 pages, and the total size of the file is 4.64 MB. Purchase now only for highly discounted price.

Author(s): Froeb, Mccann, Ward, Shor

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Name: Class: Date: Chapter 01 Introduction: What This Books is About Copyright Cengage Learning. Powered by Cognero. Page 1 1. The reduction of problems to a bad decision and then figuring out who made the decision and why they made the decision are two steps in a. problem solving. b. performing marginal cost-benefit analysis. c. calculating the profits of an auction house. d. interviewing for a job. ANSWER: a 2. Problem solving is a. firing whomever is responsible for mistakes. b. performing marginal cost-benefit analysis. c. calculating the profits of an auction house. d. the reduction of problems to a bad decision and then figuring out who made the decision and why they made the decision. ANSWER: d 3. A model of how humans behave, particularly "the rational actor" paradigm, is a necessary assumption for a. computerization of data within a business organization. b. the problem -solving algorithm. c. not assuming people are inherently good. d. assuming that humans are inherently altruistic. ANSWER: b 4. To follow the problem -solving algorithm, which one of the following is required? a. Computerization of data within a business organization. b. A model of how humans behave, particularly "the rational actor" paradigm. c. Not restricting human action to a set of tractable rules. d. Assuming that humans are inherently altruistic. ANSWER: b 5. The rational actor paradigm is characterized by all of the following except: a. The assumption people act rationally. b. The assumption people act optimally. c. The assumption people act in their self-interest. d. The assumption people act in a group's best interest. ANSWER: d 6. Which of the following questions is not used to diagnose the source of a problem in the problem -solving algorithm? a. Who is making the bad decision? b. Does the development agent have enough information to make a good decision? c. Does the development agent have the incentive to make a good decision? d. Why does the development agent have any incentives outside the interests of the firm? ANSWER: d Name: Class: Date: Chapter 01 Introduction: What This Books is About Copyright Cengage Learning. Powered by Cognero. Page 2 7. When an employee has enough information to make good decisions, and the incentive to do so, we say a. that the employee's incentives are orthogonal to the goals of the organization. b. that the employee's incentives need to be removed in order to better help the organization. c. that the employee's incentives are aligned with the goals of the organization. d. that the employee's incentives are unnecessary and only come at a cost to the firm. ANSWER: c 8. Suppose an auction house has experts that are empowered to negotiate commission rates with owners of art. Rates can be anywhere from 10% to 30%. Auction house management soon discovers that almost all negotiated commissions are either at 10% or very close to it. Use the problem -solving algorithm to select a likely explanation below. a. The art experts negotiate low commission rates in exchange for in-kind gifts from art owners. b. The art experts are not capable of adequately identifying art that would sell for enough money at auction to warrant higher commission rates; it is a lack of information. c. The art experts find their flat salary adequate and are happy to help their employer maximize profit. d. The art experts are adversarial with art owners and know that paying low commissions in the high-end art world is akin to admitting relative poverty to other art owners. ANSWER: a 9. Suppose a car dealership hires dealers to sell their cars. The dealers can negotiate the sales prices of cars within certain ranges above the manufacturer's suggested retail price (MSRP), between 2% and 10% higher. In addition, the deale rs are given 5% of the total value of the car sold. The owners of the dealership, however, soon discover that almost all dealers are selling cars for only a 2% markup over MSRP. Use the problem -solving algorithm to select a likely explanation below. a. Dealers do not have enough information about which cars are likely to sell for higher markups over MSRP. b. Dealers are incapable of negotiating for higher markups due to lack of persuasive ability. c. Dealers are not to blame. Dealership management should never give them the power to negotiate sales price. d. Dealers get paid based off the price of the car sold and benefit more from selling more cars at a 2% markup versus fewer cars at a 10% markup. ANSWER: d 10. In economics, changing incentives changes a. the technical costs associated with production within a firm. b. the productive capacity of the physical capital within a firm. c. the behavior of people within a firm. d. the entire industry that a firm is within. ANSWER: c 11. Recognizing that individuals tend toward self-interest is equivalent to encouraging selfish behavior. a. True b. False ANSWER: False 12. Recognizing that individuals tend toward self-interest is not equivalent to encouraging selfish behavior. a. True b. False Name: Class: Date: Chapter 01 Introduction: What This Books is About Copyright Cengage Learning. Powered by Cognero. Page 3 ANSWER: True 13. The rational actor paradigm is much more than a tool for analyzing behavior; indeed, it is a good way to live your life. a. True b. False ANSWER: False 14. The rational actor paradigm is a tool for analyzing behavior and a good way to live your life. a. True b. False ANSWER: False 15. Recognizing that individuals tend toward self-interest is not equivalent to encouraging selfish behavior. a. True b. False ANSWER: True 16. Recognizing that individuals tend toward self-interest is equivalent to encouraging selfish behavior. a. True b. False ANSWER: False 17. The rational actor paradigm is all of the following except: a. a tool for analyzing behavior. b. a framework that models humans as tending toward rational self-interest. c. advice for people on how to live life. d. a framework that models humans as acting optimally as determined by the actors themselves. ANSWER: c 18. Judging outcomes as good or moral due to the outcomes that result from actions is a _______ approach to morality. Judging outcomes according to their correspondence (or lack thereof) to some outside set of principles or standards is known as _______. a. consequentialist; deontology b. deontologist; consequentialism c. consequentialist; consequentialism d. deontologist; deontology ANSWER: a 19. Arguing that governments ought to regulate monopolies because they charge prices that are too high is _______ argument. a. a consequentialist b. a deontological c. neither deontological nor a consequentialist d. both a deontological and a consequentialist ANSWER: a Name: Class: Date: Chapter 01 Introduction: What This Books is About Copyright Cengage Learning. Powered by Cognero. Page 4 Name: Class: Date: Chapter 02 The One Lesson of Business Copyright Cengage Learning. Powered by Cognero. Page 1 1. One lesson of business: a. is tracing the consequences of a policy. b. promoting a policy change to eradicate inefficiencies. c. moving assets from lower to higher value uses, thereby creating wealth. d. is to maximize total revenue. ANSWER: c 2. An individual’s value for a good or service is a. the amount of money the individual used to pay for a good. b. the amount of money the individual is willing to pay for it. c. the amount of money the individual has to spend on goods. d. the amount of money the individual believes the supplier has spent on the goods. ANSWER: b 3. The difference between Capitalism and Socialism is that: a. Capitalism is concerned more about how to slice up the economic “pie.” b. Socialism is concerned with making the economic “pie” as large as possible. c. Capitalism is concerned with making the economic “pie” as large as possible. d. Capitalism is concerned with slicing up the economic "pie" while socialism is concerned with making the "pie" as large as possible. ANSWER: c 4. A buyer willingly buys a good if their _______ of the good is _______ the price of the good. a. valuation; unrelated to b. valuation; only slightly less than c. valuation; less than d. valuation; greater than ANSWER: d 5. A seller will sell a good if the price per unit of the good _______ the seller's valuation of each unit of the good. a. is greater than b. is less than c. is a markdown of d. is substantially less than ANSWER: a 6. Transactions that are __________ create wealth by letting people follow __________. a. regulated; their self-interest b. mandated; the societal good c. voluntary; their self-interest d. socialized; the societal good ANSWER: c 7. A consumer values a car at $30,000 and a producer values the same car at $20,000. If the transaction is completed at Name: Class: Date: Chapter 02 The One Lesson of Business Copyright Cengage Learning. Powered by Cognero. Page 2 $24,000, the transaction will generate: a. No surplus. b. $4,000 worth of seller surplus and unknown amount of buyer surplus. c. $6,000 worth of buyer surplus and $4,000 of seller surplus. d. $6,000 worth of buyer surplus and unknown amount of seller surplus. ANSWER: c 8. A consumer values a car at $30,000 and a producer values the same car at $20,000. The transaction will not take place if a tax is imposed a. equal to the seller surplus. b. smaller than the total surplus. c. larger than the total surplus. d. smaller than the buyer surplus. ANSWER: c 9. A consumer values a car at $30,000 and a producer values the same car at $20,000. If the transaction is completed at $24,000, what level of sales tax will result in unconsummated transaction? a. 0% b. 25% c. 20% d. 40% ANSWER: d 10. A consumer values a car at $30,000 and a producer values the same car at $20,000. What amount of tax will result in unconsummated transaction? a. $4,000 b. $9,000 c. $15,000 d. $2,000 ANSWER: c 11. A consumer values a car at $30,000 and a producer values the same car at $20,000. If a tax is levied on the seller, what level of tax will result in unconsummated transaction? a. 0% b. 25% c. 60% d. 40% ANSWER: c 12. A consumer values a house at $525,000 and a producer values the same house at $485,000. If the transaction is completed at $510,000, the transaction will generate: a. No surplus b. $25,000 worth of seller surplus and unknown amount of buyer surplus c. $15,000 worth of buyer surplus and $25,000 of seller surplus d. $25,000 worth of buyer surplus and unknown amount of seller surplus Name: Class: Date: Chapter 02 The One Lesson of Business Copyright Cengage Learning. Powered by Cognero. Page 3 ANSWER: c 13. A consumer values a house at $525,000 and a producer values the same house at $485,000. If the transaction is completed at $510,000, what amount of tax will result in unconsummated transaction? a. A tax of $9,000 b. A tax of $14,000 c. A tax of $15,000 d. A tax of $18,000 ANSWER: d 14. Akio would like to sell his handcrafted bird houses at the Haggin Oaks farmers' market. After browsing the various wares at the market, a buyer finds the bird houses and is impressed with the quality of their construction. The buyer values a particularly stunning birdhouse at $412. Having spent a lot of time, effort, and money in the construction of the birdhouse, Akio has a bottom line of $223 for the birdhouse. The two haggle and eventually settle on a final sale price of $325. If the organizers of the Haggin Oaks farmers' market charged a fee of _______, then the transaction will not be consummated. a. $35 b. $65 c. $85 d. $105 ANSWER: d 15. A consumer values a house at $525,000 and a producer values the same house at $485,000. If the transaction is completed at $510,000, what level of tax rate will result in unconsummated transaction? a. 1% b. 5% c. 3% d. 2% ANSWER: b 16. A buyer values a house at $525,000 and a seller values the same house at $485,000. If sales tax is 8% and is levied on the seller, then what would be the lowest price that the seller would be willing to sell at? a. $527,000 b. $523,800 c. $525,000 d. $500,000 ANSWER: b 17. Suppose that Etsy charges sellers a 6.5% fee on the sales price of all goods sold. Mariana decides to start a small business where she paints Mexican folk art on TOMS shoes and sells them on Etsy. Her cost of producing a pair of Taxco -stylized shoes is $75. A consumer values the same Taxco -stylized shoes at $175. What is the minimum price for which Mariana would be willing to sell the shoes on Etsy? a. $163.63 b. $81.50 c. $106.50 Name: Class: Date: Chapter 02 The One Lesson of Business Copyright Cengage Learning. Powered by Cognero. Page 4 d. $79.88 ANSWER: d 18. A buyer values a house at $525,000 and a seller values the same house at $485,000. If sales tax is 8% and is levied on the buyer, then what would be the highest price that the buyer would be willing to pay? a. $525,000 b. $523,800 c. $485,000 d. $486,111 ANSWER: d 19. The difference between the maximum price the consumer is willing to pay and the price the consumer actually pays for a product is referred to as a. market surplus. b. market shortage. c. consumer surplus. d. producer surplus. ANSWER: c 20. The difference between the maximum price that a buyer is willing and able to pay for each unit of a particular quantity of goods and the minimum price that a seller requires in order to recover the cost of supplying each unit of the same particular quantity of goods is known as a. economic profit. b. gains from trade. c. seller surplus. d. buyer surplus. ANSWER: b 21. The sum of both seller and buyer surplus is known as a. profit earned by a firm. b. gains from trade. c. consumer surplus. d. producer surplus. ANSWER: b 22. If you are willing to sell your car business for $500,000 and someone offers you $420,000 for it, this transaction will generate: a. There is no surplus created b. $80,000 worth of seller surplus and unknown amount of buyer surplus c. $40,000 worth of buyer surplus and $40,000 of seller surplus d. $80,000 worth of buyer surplus and unknown amount of seller surplus ANSWER: a 23. If you are willing to purchase a house for $300,000 and you purchase the house for $275,000, this transaction will generate: Name: Class: Date: Chapter 02 The One Lesson of Business Copyright Cengage Learning. Powered by Cognero. Page 5 a. There is no surplus created b. $25,000 worth of seller surplus and unknown amount of buyer surplus c. $10,000 worth of buyer surplus and $15,000 of seller surplus d. $25,000 worth of buyer surplus and unknown amount of seller surplus ANSWER: d 24. If you are willing to purchase a house for $500,000 and you purchase the house for $500,000, this transaction will generate: a. There is no surplus created for either of the party. b. $0 worth of seller surplus and unknown amount of buyer surplus. c. $0 worth of buyer surplus and unknown amount of seller surplus. d. Unknown amount of buyer and seller surplus. ANSWER: c 25. Total surplus, or total gain created from trade, equals a. seller surplus. b. buyer surplus. c. the sum of seller and buyer surplus. d. profits earned by a firm. ANSWER: c 26. An auction on eBay results in a final price of $24 for an original VHS copy of the well-received film Predator . The seller of the video tape of the 1987 classic values the copy at $5. Meanwhile, the buyer, an avid collector of 80's action films, has a top dollar of $33. In this case, the consumer surplus is _______, the producer surplus is _______, and the total surplus is _______. (Assume in this example that eBay does not collect a fee for providing an auction marketplace.) a. $9; $0; $38 b. $0; $19; $38 c. $9; $19; $28 d. $19; $9; $28 ANSWER: c 27. The biggest advantage of capitalism is that a. it generates wealth with the help of government intervention. b. prices hinder in moving assets from high-value to low-value uses. c. it forces involuntary exchanges. d. it creates wealth by letting people follow their own self-interests. ANSWER: d 28. The difference between the minimum price the producer is willing to accept and the price the producer actually receives for a product is referred to as a. market surplus. b. market shortage. c. consumer surplus. d. producer surplus. Name: Class: Date: Chapter 02 The One Lesson of Business Copyright Cengage Learning. Powered by Cognero. Page 6 ANSWER: d 29. If you are willing to sell your lawn mower business for $355,000 and someone offers you $420,000 for it, this transaction will generate: a. There is no surplus created b. $65,000 worth of seller surplus and unknown amount of buyer surplus c. $30,000 worth of buyer surplus and $35,000 of seller surplus d. $65,000 worth of buyer surplus and unknown amount of seller surplus ANSWER: b 30. Wealth is created when a. assets move from lower value use to higher value use. b. assets move from higher value use to lower value use. c. assets move from individuals who are willing to pay less for them to individuals who are willing to pay more for them. d. assets move from the rich to the people whose incomes are below the federal poverty threshold. ANSWER: a 31. A creative entrepreneur is one who knows how to a. run a business. b. escape the burden of taxes. c. profitably exploit money making opportunities. d. extract as many favors and protections from government as possible. ANSWER: c 32. An advantage of capitalism is that a. it does not allow the market to self-regulate and clear itself. b. it does not allow people to follow their own self interests. c. it does not allow voluntary transactions, which create wealth. d. it allows market to self-regulate and clear, allows people to follow their own self-interests, and allows for wealth -creating voluntary transactions. ANSWER: d 33. Which of the following describes a firm? a. Only purchases labor hours from workers. b. Only borrows capital from investors. c. Only combines labor and capital to create production, moving them from their low value use to a high value use. d. Arranges labor from workers and capital from investors to produce goods such that the resources are moved from their low value uses to their high value uses. ANSWER: d 34. If company X is successfully outsourcing its production of T-shirts to China, it: a. Creates wealth by moving labor in China from lower -value use to higher -value use b. Should be stopped on economic grounds since it is destroying wealth Name: Class: Date: Chapter 02 The One Lesson of Business Copyright Cengage Learning. Powered by Cognero. Page 7 c. Destroys wealth by acquiring cheaper labor from China d. Destroys wealth by depriving labor in other countries of jobs ANSWER: a 35. Musicians sometimes sell the right to the future proceeds of their performances to investors for lump -sums of cash (often at a discount). These are called royalties. When artists sell their royalties to investors, wealth is created by a. shifting money from those who have a lot (investors) to those who have little (artists). b. shifting money forward in time for musicians to satisfy their present needs and providing a steady income to investors with potential upside of securing the rights to performances of a would -be star. c. providing untalented investors the possibility of earning a living from music. d. providing untalented artists the possibility of earning a living from investments. ANSWER: b 36. Suppose a retailer is operating at a loss and gets bought out by a larger chain of department stores, who then shuts down the retailer. The assets from the retailer are used by the larger chain. Which one of the following statements best captures what happens to wealth in this example? a. Wealth is destroyed since the company shut down. b. Wealth is created since the resources were of lesser value under the X brand and are now worth more. c. Wealth is neither created nor destroyed since the total amount of resources stay the same. d. Wealth is destroyed since the larger chain bought out a failing company. ANSWER: b 37. You clean out your garage and find a copy of a computer game that you no longer wish to play. Instead of throwing the computer game CD-ROM in the trash bin, you list it on an auction website; it sells for $5. Your local government charges a $1 tax on all online sales. In this case, wealth is a. created by enriching yourself with $4 and providing a valued good to the buyer. b. created by providing a taxable transaction for the local government. c. destroyed by not removing a good with zero value from the economy. d. neither destroyed nor created because trash was simply transferred from one person to another person. ANSWER: a 38. Government can a. create wealth by not interfering in the markets in any way whatsoever. b. not affect wealth in the markets. c. create wealth by enforcing property rights and contracts. d. create wealth by making choice decisions for the market. ANSWER: c 39. Technological advancement creates unemployment in firms that shut down or labor that is laid off. Wealth in this case is a. destroyed since firms are shutting down and production of certain goods and services is decreasing. b. created since the dislocated labor and resources are absorbed by new firms created through the technological innovation, moving them to higher value use. c. destroyed since technological progress is leading to higher unemployment. d. created since the owners of firms save on the costs associated with compensating labor for their productive Name: Class: Date: Chapter 02 The One Lesson of Business Copyright Cengage Learning. Powered by Cognero. Page 8 efforts. ANSWER: b 40. You are sick and tired of your old wardrobe. You decide to donate it to a charity of your choice. Your action a. creates wealth by moving the clothes from lower value use to higher value use. b. destroys wealth since you lose your clothes. c. creates wealth by making you feel richer. d. creates wealth by making the charity richer. ANSWER: a 41. Your cellular phone contract is due for renewal and the company offers you a new free phone. Since you want to use your new phone, you decide to recycle your old phone. Your action a. creates wealth by moving the phone from lower value use to higher value use. b. destroys wealth since you lose your phone. c. creates wealth by making you feel richer. d. destroys wealth since the company gave away the phone for free. ANSWER: a 42. When the market is in equilibrium, with no government intervention, a. total surplus is minimized. b. total surplus is maximized. c. government maximizes total revenue. d. consumer surplus is maximized, producer surplus is minimized. ANSWER: b 43. Price ceilings are primarily intended to help a. no one. b. consumers. c. producers. d. government. ANSWER: b 44. Government can intervene in the market through a. only price floors. b. only price ceilings. c. only taxes. d. taxes, price floors, and price ceilings. ANSWER: d 45. At a minimum, wealth -creating transactions require government a. consummating only the transactions where poor consumers have greater surplus than rich producers. b. establishing minimum prices that can be charged for goods and services. c. establishing maximum prices that can be charged for goods and services. Name: Class: Date: Chapter 02 The One Lesson of Business Copyright Cengage Learning. Powered by Cognero. Page 9 d. enforcing property rights and contracts . ANSWER: d 46. Government intervention a. can provide incentives to conduct business in an illegal black market. b. plays no role in generating wealth. c. is the best way to eliminate poverty. d. does not enforce property rights. ANSWER: a 47. Wealth creating transactions are more likely to occur a. without private property rights. b. without contract enforcement. c. with private property rights and contract enforcement. d. with only private property rights and no contract enforcement. ANSWER: c 48. Price floors are primarily intended to help a. no one. b. consumers. c. producers. d. government. ANSWER: c 49. Rent controls a. are an example of price floors. b. are an example of price ceilings. c. destroy wealth by preventing the movement of apartments to higher -valued uses. d. are an example of price ceilings and destroy wealth by preventing the movement of apartments to higher -valued uses. ANSWER: d 50. Price gouging a. is outlawed trading at prices above a certain price level. b. is outlawed trading at prices below a certain price level. c. is an act of charging a high price to take advantage of shortages created by natural disasters. d. is an act of charging a low price to undercut all competitors until they exit the industry. ANSWER: c 51. Taxes a. have no effect on markets. b. cause an increase in incentives to work. Name: Class: Date: Chapter 02 The One Lesson of Business Copyright Cengage Learning. Powered by Cognero. Page 10 c. cause an increase in wealth creating transactions. d. cause market distortions, reductions in incentives to work, and decreases in wealth creating transactions. ANSWER: d 52. Economic reasoning is based on the premise that a. all decisions or actions are costless. b. only non-economic decisions or actions have a cost associated with them. c. only economic decisions or actions have a cost associated with them. d. all decisions and actions have a cost associated with them . ANSWER: d 53. Subsidies can destroy wealth because a. subsidies move assets from lower - to higher - valued uses. b. subsidies move assets from higher - to lower - valued uses. c. subsidies help producers only. d. subsidies help consumers only. ANSWER: b 54. A price ceiling can often be viewed as a. the government setting price above market equilibrium price. b. an implicit tax on producers and an implicit subsidy to consumers. c. the government setting price below market equilibrium price. d. the government imposing an implicit tax on producers, an implicit subsidy to consumers, and setting prices below the market equilibrium price. ANSWER: d 55. An example of a price floor is a. minimum wages. b. rent controls in New York. c. a clearance sale price. d. an insurance maximum out-of-pocket expense. ANSWER: a 56. Price ceilings cause: a. Some suppliers to drop out of the market b. A decrease in the total production in the market c. The creation of black markets d. At least some suppliers to drop out of the market, a decrease in total production in the market, and the creation of black markets ANSWER: d Name: Class: Date: Chapter 02 The One Lesson of Business Copyright Cengage Learning. Powered by Cognero. Page 11 57. The illegality of organ sales from willing donors to willing recipients is ineffective because: a. it encourages organ sales b. it discourages wealth creating transactions through the threat of heavy penalty c. it encourages government intervention d. it encourages lifestyles compatible with healthy organs ANSWER: b 58. The zero sum fallacy refers to a. you gaining only if someone else loses. b. the allocation of the pieces of the total economic "pie"—if you eat the piece, I cannot consume it. c. ignoring the possibility of the total "pie" growing itself. d. the idea that someone only gains if someone else loses, that an economic "pie" has slices that can only be consumed by one person, and does not account for the possibility of the "pie" growing itself. ANSWER: d 59. The idea that someone must lose in order for someone else to win in a market transaction is known as a. the shared -cost fallacy. b. the zero-sum fallacy. c. the total-sum fallacy. d. the sub-zero fallacy. ANSWER: b 60. A good policy _______ and a bad policy _______. a. moves an asset to higher value use; moves an asset to lower value use b. moves an asset to lower value use; moves an asset to higher value use c. refrains from any government intervention; concentrates on government intervention d. concentrates on government intervention; refrains from government intervention ANSWER: a 61. When taxes are levied on transactions, irrespective of the party they are levied on, a. the government can absorb all the consumer surplus from the transactions as revenue. b. the government can absorb all the producer surplus from the transactions as revenue. c. the government can absorb some of the surplus, but also create a social loss since some of the wealth creating transactions are discouraged. d. the government can absorb all of the surplus (producer and consumer). ANSWER: c 62. The Indian government constructs houses for the people who are homeless to move them out of the slums. Soon as these houses are constructed, the people who are homeless rent them out and move to another slum. Where could the policy have gone wrong? a. The policy would have been much more effective had the poor been given the cash equivalent of the house to allocate effectively by themselves.